In the loan application process: Increased market access not advantageous

Bay City, Texas, rice producer Mike Burnside wonders how he and other Texas rice producers can make bumper crops, but end up losing money. El Campo, Texas, rice producer L.G. Raun thinks trading a portion of agricultural subsidy benefits for increased market access may sound good in theory, but won't look good on paper for farm lenders.

Troublesome problems of the new millennium all — Catch 22s that have Texas rice producers worried about their futures. Burnside and Raun discussed these issues and possible solutions in between sessions at the 2005 USA Rice Outlook Conference, Austin, Texas.

Burnside, a fourth generation rice producer who farms 675 acres of rice, had a lot to be thankful for this year, with his rice crop coming in around 11,800 pounds per acre. “I was lucky enough to cut my ratoon crop prior to the hurricane,” he said.

Still, he projects he'll lose about $50,000 because of unexpectedly high input costs — including fuel, fertilizer and chemicals. “We're also paying more and more of our costs up front with new technologies, in cotton and rice.”

“I'm at a loss,” said the frustrated farmer. “I farm all my acres by myself and one man. I can't get any more efficient. I have two tractors. I don't know what else to do. We're the meanest, leanest farmers in the world, and we can't make it with a bumper crop. Something is wrong.”

Burnside plans to cut rice acreage in 2006 by a minimum of 25 percent, explaining, “I'm in a survival mode.”

The producer, who has been farming on his own since 1971, believes the mid-2000s rival the tough economic times of the early 1980s. The big problem today is that the United States overproduces most of its commodities. “As much as I hate to say it, we need to go back to some type of setaside, or acreage control program, but I know we'll never do it.

“The problem today is that if we have one good upshot in the market, it only lasts one year. We are our own worst enemies, the way we overproduce. Look at corn with 2 billion bushels of carryover. Technology has brought us higher yields in cotton. I have friends out on the High Plains who are making 4.5 bale cotton, irrigated, and the dryland is making 3 bales.”

On the other hand, producers seem to be always one bad crop away from the poorhouse, noted Burnside. “If we hit a bad crop, we are in deep you-know-what. As bad as we thought those old farm programs were, I was a lot better off prior to the 1996 farm bill. And I was in favor of changing them, so we could farm what we wanted to farm. But the loopholes in the farm bill have created a monster.”

One of those loopholes is an ongoing problem between landlords and tenants. “Starting with the 1996 farm bill, most of the absentee landlords started kicking producers off the land and taking the subsidy money on the advice of their accountants. That's not right. All our young farmers got kicked off the land. It's going to haunt growers in Arkansas and Louisiana, too.”

Burnside added that Texas rice producers' ability to continue to increase their efficiency could be in jeopardy, too, with acreage dropping and cash-strapped producers taking advantage of refundable checkoff dollars. “Our research dollars are going to drop.”

El Campo producer L.G. Raun believes that the WTO and/or a greener farm bill could have a profound effect on the most critical aspect of a rice producer's production program — getting approved for a loan.

“Having a price support system tied to production is where the rubber hits the road with your banker. You can show the banker your repayment ability. There's no way to do that on conservation or with the increased market access we're supposed to get through WTO.

“How many dollars per hundredweight is increased market access going to increase my price of rice. Can I prove to my banker that it's going to improve prices in El Campo by $3? They say it will, but it's going to be a real issue — getting an operating loan with the decreased safety net, if that's what it comes to.

“I can't tell my banker that my collateral increased because of WTO negotiations. The banker wants to know about the price support situation, and what I can fall back on.”

Raun is concerned that not enough analysis has gone into how WTO could affect specific commodities. “We just put it on the table and no one knows what it's going to do to the rice farmer, the milo farmer. Certainly, if you're on the import/export side, anytime you increase market access, you're buying at one price and selling it at a higher price. That's great. You're always going have a good chance to be a winner.

“But that's not necessarily true on the production side. We're going to have to give up 60 percent of our amber box payments, price support/safety net provisions to get that market access, and we don't know if the increase in access is going to translate into a higher price.

“We can't win in this development round.” Raun said. “It's for the benefit of the developing countries. They won't sign off on an agreement unless it benefits them.”

Other rice producers interviewed at the conference echoed Raun's concerns about another Catch 22 for U.S. producers: That is U.S. farm policy could be WTO compliant if it combined all subsidy payments, including those for conservation, into one direct payment to producers. But would this simply drive up land prices, and encourage landlords to kick farmers off the land so they — rather than the farmer — can collect the payment?

“The greener we get, the more the payments are going to be tied to the land instead of production,” Raun said. “The land tied to production is what keeps the tenant on the farm instead of the landlord kicking him off.”